STOCKS AND OIL RALLY: Here’s what you need to know (SPY, SPX, DJI, IXIC, USO, WTI, OIL, VDE, BNO, AAPL, YHOO)

REUTERS/Brendan McDermid

Stocks rallied on Monday after closing at the lowest level in a month to end the week on Friday.

If stocks don’t make new all-time highs by the end of the week, it would be one year since that happened.

First, the scoreboard:

• Dow: 17,710.71, +175.39,(1.00%)
• S&P 500: 2,066.66, +20.05, (0.98%)
• Nasdaq: 4,775.46, +57.78, (1.22%)
• WTI crude oil: $47.72, +$1.51, (3.27%)

Oil

Oil could be slowly closing in on $50 per barrel.

Brent crude, the international benchmark, crossed $49 per barrel to the highest level in about six months. West Texas Intermediate crude futures in New York rose to as high as $47.85 per barrel. Both climbed 3%.

There were two big oil-related stories that dominated headlines today. The first was from a Goldman note out Sunday that basically called the end of the biggest issue that’s recently plagued the oil market: the supply/demand imbalance.

After US shale producers and others started threatening OPEC’s dominance of the oil industry, an all-out war for who could keep the biggest market share started. The problem was that nobody asked for that much oil. And so, the glut triggered the worst oil crash witnessed in a generation.

That’s why Goldman’s statement that “the physical rebalancing of the oil market has finally started” is a big call.

Here’s more from Damien Courvalin and team:

While supply and demand surprised to the upside commensurately in 1Q16, leaving the market oversupplied by 1.4 mb/d, we believe the market has likely shifted into deficit in May. The 2Q16 deficit that we now forecast is occurring one quarter earlier than we expected mid-March, driven by both sustained strong demand as well as sharply declining production. The shift in OECD stocks will be further exacerbated by the ongoing strong Chinese inventory builds.

The other big oil news came from Nigeria, where militants have been attacking infrastructure in the oil-rich south and curtailing output.

Reuters reported that Nigerian production has fallen to the lowest level in several decades. But in the same breath, they noted that expectations for new new exports from a Libyan port and Exxon Mobil’s plans to ramp up Nigerian oil production all serve as bearish threats to oil prices.

Warren Buffett

The Berkshire Hathaway CEO made news today because of one of his least-favorite industries — tech.

On Friday, Reuters reported that Buffett is backing a consortium involving Quicken Loans founder Dan Gilbert to buy Yahoo’s internet business.

And on Monday, Buffett confirmed to CNBC that he would be willing to finance Gilbert’s bid. The last time Buffett publicly commented on Yahoo — in his CNBC interview after Berkshire’s annual meeting — he was pretty clear about what he thinks about the company (sans the glitch-free livestream):

Their business has continuously slipped and they’ve made a lot of acquisitions in the last couple of years. And clearly, it has not turned around the company. I think that they’ve said that they expect revenue to be down in 2016 again. Something has to change there, obviously.

He also suggested that shareholders should be irritated by Yahoo CEO Marissa Mayer’s reported $55 million severance package if she loses her job in the sale process (possibly to Gilbert and his group)

Buffett also noted that Yahoo is not the type of business he would normally invest in. Buffett has said before that tech is a tricky sector to invest in; because the industry changes so rapidly, it’s hard to know which companies would be successful in the long run.

But Berkshire was willing to make a bet on Apple in the first quarter. A regulatory filing showed that the company owned $1 billion worth of shares, or about 9.81 million shares as of the end of Q1.

Buffett emailed the Wall Street Journal to say he did not add the shares to Berkshire’s portfolio himself.

But the stake — even though it may have since been liquidated — was good news to investors. Apple shares jumped 3% in trading. They fell towards a two-year low last week.

US Economy

Homebuilder sentiment is steady as she goes.

The National Association of Homebuilders’ housing market index was unchanged for a fourth straight month at 58 in May. Economists had forecast that it rose to 59.

The good news was that future sales expectations increased a little bit, which showed that builders thought the housing market would continue to improve.

“Job creation, low mortgage interest rates and pent-up demand will also spur growth in the single-family housing sector moving forward,” saidNAHB Chief Economist Robert Dietz.

New York manufacturing looks a lot worse.

The general business conditions index from the New York Fed unexpectedly plunged to -9.02 in May from a 15-month high of 9.56 in April.

New orders and shipments fell as their indexes dropped below zero. The capital expenditures index tanked to its lowest level in over two years.

Economists are now waiting on Thursday’s Philly Fed manufacturing report for a more complete picture of the sector.

“If this Thursday‘s Philadelphia Fed survey corroborates the weakness in yesterday’s Empire figures, the chances of a sub-50 reading on the manufacturing ISM would be elevated,” said Deutsche Bank’s Joe LaVorgna in a note. “Historically, the latter has been in contraction territory on 68% of the occasions when the Empire and Philadelphia ISM-adjusted series were both below 50.”

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